BUSN9227 Financial Management - Assignment Help on CBA Job Cutting and Bank Closure

Trend Analysis

A new kind of future is awaiting the banking industry with strong economic fundamentals, favorable regulatory climate and accessible transformation technologies. Over the part decade, the top 1000 world banks have grown in terms of assets, return on assets and capital/assets ratio. According to a report by Delloite (2019), banks have become bigger, profitable and better capitalized (see figure 1 below). 

However, despite of ongoing growth, the banks worldwide are following a trend of closing about 60 bank branches a month. According to BBC (2018) report, around 2,868 branches were found to be closed down between 2015 and 2018 with the number accelerating every year. This report is written to put insight on the ongoing trends of domestic and international banks that are following bank branches closure (BBC, 2018). 

Domestic and International

The recent report by BBC (2018) outlined an alarming international trend followed by banks throughout the globe following branches closure. The report shows that since people have no proper access to online banking, so retail banking is losing customers. The demand for physical branches has been decreasing due to which banks see the maintenance of branches as an unprofitable activity that is leading towards branch closures. The banks in United States had 4,821 branch closures between 2009 and 2014, while in United Kingdom, more than one-quarter branches closed between 2012 and 2017. The international branch closure is being fed by major two factors:

• Changing consumer behavior: With the advent of big data, artificial intelligence and cloud, the consumers are more attracted towards using products driven by high technology. There is an ongoing increase in demand for mobile banking and online banking. 
• Increased cost of services: Due to more stringent banking regulations, the banks are finding it costly to offer services to customers through bank branches, hence a closure of branch seems to be better option. 

Globally, the branch density has continued to decline as average number of bank branches per 100,000 adults have swooped downwards for leading developed countries (see figure 2 below).

Figure 2: Bank Density Declining

Source: (Deloitte, 2018)

Following the international trend, banks in Australia are also shutting down the branches at a rate of 15 a month (Mingas, 2018). According to Mingas (2018), the banks in Australia (including CBA) have already closed 255 branches since 1st July 2017. Since the start of 2018, over 280 branches have been closed by Westpac (40 branches closed), CBA (34 branches closed), ANZ (closed 51 branches) and NAB (71 branches closed). 

Australia’s plan of shutting down of various bank branches can be found to be a mirror of UK’s banking industry during Global Financial Crises. Similar to that era, currently people living in rural areas in Australia have to travel to urban towns for using banks and ATMs and then they end up doing all the shopping there. NAB closed atleast 10 branches in NSW and South Australia in 2018 while CBA shut down 9 branches during 2018. According to Woodburn (2018), in rural parts of NSW, the business men are finding it difficult to put cash in banks because they have to drive 90 minutes for finding a branch in another town elsewhere.  

In this whole trend, CBA is also considering massive slashing down of bank branches to save money. The decision taken was to increase its net interest margin (NIM) due to intense competition from its peers especially from WBC and ANZ. CBA had a grossed-up dividend yield of 8.4% in 2018 with operating expenses gone up by 1% and operating income dropped down by 4%. Cutting down the 10,000 jobs and branch closures would likely save CBA lots of money. According to report by Harrison (2019), 4000 jobs will be reduced from total job count just from assets being sold by CBA due to bank closures. Following the branch closure program, CBA shares are expected to fall under $70 with expectations to fall even lower in future. Another report by Boisvert & Sutton (2019) highlighted that axing up 10,000 local jobs by CBA would save it $2 billion operating costs.